President Trump signed an Executive Order that tightens executive control of the federal grant funding process by requiring a senior appointee at each federal agency to sign off on each grant the agency makes. A senior appointee is a non-career employee of the executive branch, often appointed by the President.
The Order directs each agency head to designate a senior appointee who will be responsible for creating a process to ensure any discretionary grants awarded are consistent with the President’s policy priorities and the national interest. Among other provisions, the Order prohibits agencies from approving grants that will fund, promote, encourage, subsidize, or facilitate:
The Order also requires agencies, to the extent permitted by law, to take steps to revise the terms and conditions of existing grants and include in future discretionary terms: (1) allowing federal agencies to terminate grants for any reason and at any time; and (2) prevent grantees from immediately drawing down general grant funds for specific projects without the affirmative authorization of the agency.
Collectively, these provisions and others in the Order will impact the availability of federal funding, increase scrutiny of applications for federal funding, and change the terms and conditions of existing federal grants.
As nonprofits evaluate the implications of this Executive Order, they can take proactive steps to prepare for anticipated changes in federal grantmaking. The following five steps provide a roadmap for nonprofits to move from regulation to readiness and shift from awareness of federal grantmaking changes to building the compliance capacity necessary for effective responses to the new federal grantmaking requirements.
The new Executive Order requires that termination-for-convenience clauses be included in all discretionary grants, to the extent permitted by law. Federal agencies have been directed to revise their standard terms and conditions, so this language is consistently applied in future grantmaking. Nonprofits should review their current federal grants, as well as federal funds received through state pass-throughs, to identify existing termination provisions. In particular, organizations should determine whether current clauses allow termination only for cause (such as noncompliance or misuse of funds), by mutual agreement, or at the agency’s discretion for convenience. By understanding the type of termination clauses already in place, nonprofits can better assess their present level of risk and identify areas where they may be especially vulnerable to a sudden loss of funding.
The Executive Order bars agencies from approving grants that support initiatives deemed to “compromise public safety” or “promote anti-American values.” Nonprofits should carefully review their priority areas against the categories identified in the Order and assess whether any of their programs may intersect with these restrictions. This analysis can help organizations identify which existing funding streams may face heightened risk and allow them to prepare proactively for potential disruptions. Organizations with significant programmatic activity in these areas should take steps now to diversify funding streams, with particular attention to private foundation opportunities.
Executive leadership and the Board of Directors should remain in close communication regarding the organization’s federal funding. As fiduciaries, board members are obligated to understand potential threats to the nonprofit’s financial health and long-term sustainability. This responsibility includes reviewing the organization’s current grant funding, being aware of the proportion of operations supported by federal dollars, and recognizing emerging risks to those funds. The board should also ensure that a sustainability plan is in place that accounts for available reserves and outlines steps the organization will take in the event of a sudden loss of federal support.
Nonprofits should exercise particular caution when reviewing new Funding Opportunity Announcements and carefully examine all provisions. They should not assume that the terms and conditions used in prior grants will carry over unchanged. Organizations should also evaluate their capacity to comply with new requirements and realistically assess whether they could withstand a termination for convenience if it were exercised under future federal funding.
Nonprofits should ensure that their financial records and program performance reports are complete, accurate, and well-documented. All documentation should clearly link activities carried out under federal awards to the stated objectives and deliverables. If there are concerns about meeting specific performance goals, organizations should record both their progress to date and the corrective steps planned to achieve those goals. Records should be organized in a manner that allows for easy retrieval, and all required reports should be submitted on time. While thorough documentation is essential for compliance, it also serves as a critical risk management tool under this new Executive Order.
Clients who receive federal grants should carefully monitor developments from the agencies that fund them and be prepared to comply with, and evaluate the impact of, this Executive Order on their grants and operations. LCW attorneys are available to assist nonprofit leadership in evaluating the implications of the Federal Grantmaking Executive Order through specifically-tailored advice and consultation